New research from CASE and the Early Education and Childcare Coalition (EECC) finds that reforming existing childcare schemes could strengthen work incentives, increase family incomes and make better use of the government's £7bn investment in childcare support for working parents. Using new evidence from parent focus groups and the modelling of large-scale household data, this analysis identifies critical weaknesses in the current system and offers solutions which do not substantially increase Government budget costs.

Childcare support for working parents in England is currently spread across a myriad of confusing schemes with substantial administrative burden for families seeking to access the support. Many lower income working parents do not use the support they are entitled to because of this burden and complexity.

This research also highlighted several 'cliff edges' in support which weaken the incentives for parents to earn more:

• Support falls from 85% to 20% of childcare costs for families moving from the Universal Credit childcare support to Tax-Free Childcare.
• Families completely lose both Tax-Free Childcare and the `30 Hours’ working parent funded entitlement if one parent’s earnings tips over the upper threshold.
• Some parents restrict their work hours to those covered by the 30 Hours because of the complexity and burden of using additional scheme.

The modelling estimated the benefits from several options combining the current schemes into a single stream that would be easier to navigate, better incentivise work and boost income for many families.

One option combining Universal Credit childcare support and Tax Free Childcare into a single scheme with a smooth reduction in the level of support as earnings rise would:

• Significantly improve work incentives, particularly for working families with around average earnings.
• Substantially increase average disposable income for just over a quarter (26%) of working families, compared to a much smaller proportion (7%) who would receive substantially less support.
• Increase the average childcare support for the lowest income working families from 5.0% of family income to 7.4% and to as much as 13.6% if the simpler and more accessible scheme improved take-up.

More ambitious reforms would offer even greater benefits:

• Switching to an hourly subsidy could achieve similar benefits at lower cost to the Government: the increase in subsidy costs for the Government is estimated to be 15% for an hourly subsidy compared to 56% for the smooth subsidy rate.
• Bringing the 30 Hours into the single scheme with a smooth rate of support would allow more help to be targeted to lower income working parents without substantial increase in the cost to Government: the average monthly value of the support could rise by more than £100 for those in the lowest income group within current Government spending.

Report author Dr Gillian Paull said:

“The analysis in this report has a clear message that reshaping the structure of childcare support for working parents could enhance work incentives and income support for lower-income families without substantial increases in the cost for Government. Change would be a valuable investment: while there would be some costs to reforming the current collection of schemes, these are likely be outweighed by the long-term benefits for families, the economy and society more broadly.”

Sarah Ronan, Executive Director of the Early Education and Childcare Coalition, said:

“Childcare support should be an enabler of opportunity, not an obstacle to it, yet that’s the situation we have with the current system. We know that Government investment in childcare works and makes a difference for those who can access it, but as this research shows, it’s simply not reaching the people who would benefit the most. That is holding back children, parents and the economy at a time of rising prices and low growth. The Prime Minister recently spoke about focusing on the essentials we all need to live a good life, whether that’s water or transport. For parents, childcare is one of those essentials.”

Find out more. Read about the project and the report. 

Methodology:

Parent focus groups

Three online focus groups were undertaken in April 2026 with 23 parents of preschool children using Universal Credit (UC) and/or Tax-Free Childcare (TFC) to help with their childcare costs. Participants were asked about their experiences of paying for childcare, using existing support and their views on potential reforms. The groups included parents from a range of backgrounds, household types, regions, ethnicities, disabilities, and childcare arrangements, including parents of children with Special Educational Needs and Disabilities (SEND). The groups also included users of the 15 and 30 funded hours. The findings were used to sense-check the economic modelling and ensure the reform options reflected families’ real-life experiences.

Quantitative data analysis

The modelling used four waves of the nationally representative Family Resources Survey, covering 2021/22 to 2024/25. The data were updated to 2026/27 using inflation, earnings and benefit uprating, alongside changes in childcare costs and the expansion of funded early education to children from nine months. Information on family structure, employment, income and childcare were used to estimate eligibility for and take-up of Universal Credit childcare support and Tax-Free Childcare.

The analysis then modelled the impact of different reform options on family incomes and government spending. The impacts of improved take-up were also considered using a scenario which assumed that half of eligible non-users began claiming support. The modelling compares the immediate impact of the different reforms, assuming parents do not change their work patterns or childcare use and providers do not change their fees. The reforms for Universal Credit childcare and TFC were analysed using a sample of 3,345 working families paying for childcare, while broader reforms including the working parent element of the funded entitlement used a sample of 4,039 families, adding working parents not paying for childcare but using their funded entitlement.